February 2012

July 04, 2010

Why Do Great KM Programs Fail?

When I was young and even more naive than I am today, I used to believe that if you did good work it would get recognition. If you did something that made a contribution and were able to prove it with hard numbers, rational people would inevitably recognize your success.

I was therefore somewhat surprised when I found that most of the great knowledge management programs that I observed in organizations were eventually closed down, sidelined or shifted to the periphery. The managements of these organizations didn’t seem to appreciate great KM accomplishments right in front of their noses.

I am not talking here about badly managed KM programs, such as programs with unclear goals, or no communities of practice, or an excessive reliance on IT to address human problems. I am talking about well-run internationally-recognized KM programs.

I saw the phenomenon at BP. I saw it at IBM. I saw it at Ernst & Young. I saw it at Hewlett Packard. I watched it happen to a certain extent after I left the World Bank. These were world-class programs, with demonstrated results that were not understood appreciated by the management. In due course, they were closed down or undermined or sidelined. Why?

These great KM programs would flourish for a while, and even receive some internal recognition. But then something would happen. For instance, there would be a merger: in the name of rationalization, the KM program would be declared a success and the leadership unit of the KM program would be gutted. Or there would be a cost-cutting drive, and the KM program would be one of the sacrifices. Or the organization would decide to appoint a leader of the knowledge program who was docile and didn’t rock the boat, so that the death became a long drawn-out affair.

Why, I asked myself, did managements act this way? Why didn’t they recognize that knowledge was the very lifeblood of these organizations? Why didn’t they examine the metrics of success? Why did they take such thoughtless decisions, almost by accident, and kill something of central importance to their organization’s future?

It’s not just knowledge management!

One clue came from the recognition that the phenomenon wasn’t limited to knowledge management.

I noticed the same phenomenon in lean manufacturing, which was invented at Toyota in the 1950s and introduced into the USA in the 1980s. A collaborative review of the phenomenon was conducted and reported in 1990 in the landmark book, The Machine That Changed The World, by James Womack, Daniel Jones, and Daniel Roos. In the study, the top-rated plant—globally— in terms of quality and productivity wasn't a Japanese plant. It was a Ford plant in Hermosillo, Mexico. So you would think that Ford would be so proud and grateful that it would celebrate and replicate the success elsewhere. Just the opposite happened. The Hermosillo plant was doing things “differently” from the rest of Ford and so it was “brought back into line”. In effect, the innovation was killed.

Intrepid managers didn’t give up. The Hermosillo experience was emulated in Ford in the 1990s at the Romeo engine plant in Michigan. But Ford eventually forced the successful start-up plant manager to resign and replaced him with a succession of more conservative appointments.

So even when an oasis of excellence and innovation is established within an organization being run on traditional management lines, the experience doesn’t take root and replicate throughout the organization because the setting isn’t congenial. The fundamental assumptions, attitudes and values are at odds with those of traditional management.

What are the values and attitudes that kill knowledge management? What are these fundamental assumptions, attitudes and values of traditional management, that tend to kill all creative and innovative activities in a firm? They are fairly well-known. They are taught in business schools. They are present in management textbooks. They are heard as a regular drum-beat in that Vatican of management: Harvard Business Review.

The first assumption is that the standard practices of traditional management—hierarchy, command-and-control, tightly planned work, competition through economies of scale and cost reduction, impersonal communications—are a success. Indeed, managerial discourse in these firms proceeds as though these practices reflect timeless truths of the universe, so obvious that there is scarcely any need to articulate them, let alone re-examine them. There is an inability to admit that these managerial practices arose as a response to a specific set of social and economic conditions. Now that those conditions have changed, the validity of the principles is a serious issue.

The second plank is an unwillingness to take seriously any evidence to the contrary. Lang Davison, a co-author of The Power of Pull (2010) was telling me recently about the workshops that were run by the Deloitte’s Center for the Edge with their startling new findings, such as that the rate of return on assets of US companies is one quarter of what it was in 1965. The executives were unwilling to take the studies seriously. “They are living a delusion,” Lang said, “it’s all the more powerful as it’s a collective delusion, as reflected by the capital markets. We even heard executives say, in response to our findings about declining ROA, that it couldn’t be that bad if the equity markets still value corporate institutions so highly.” The third assumption of traditional management is that the marketplace can be predicted and controlled and manipulated. Fifty years ago, this was a reasonable assumption. Big companies were oligopolies and controlled the marketplace. There was high demand for their products and services. After the Depression and the war, people were happy to have any refrigerator or television. Customers had little access to reliable information. And with only three television channels, big companies could control the airwaves. New entrants into the marketplace were not a serious threat. Global competition was still in the future.

Traditional management was a good fit for this setting. But it is a very poor fit with the world of 2010, where global competition and the shift of power from sellers to buyers have transformed the situation. Big companies are no longer in control of the marketplace. Providing goods and services are no longer enough. To assure their future, they have to establish relationships with customers and win their delight, not merely their satisfaction. This is a radical change in the challenge faced by firms today. Instead of a simple linear manipulation, firms are now involved in complex interactions.

The fourth plank of traditional management is to view employees as “human resources” i.e. things that can be controlled and manipulated and exploited. So long as the firm was merely providing goods and services to the marketplace, it could give commands to employees as to what to do and control them to make sure that they did what they were told. Once the challenge became one of having interactions with customers and creating a steady flow of innovations and new value to customers so that they would be delighted, the firm depended on its employees to generate those innovations and interactions. Smart firms discovered that the energy and enthusiasm and insights of its employees—now often highly educated—couldn’t be bought or directed or commanded and controlled. Instead, employees had to be inspired to contribute—a radically different and more difficult challenge. Again it was a shift from a simple linear manipulation to a complex interaction.

The fifth plank of traditional management is to view the firm as an entity exploiting a static stock of knowledge, through “scalable efficiency”. Traditional management hasn’t grasped that the game has changed. Today’s customers demand not merely average products based on static knowledge stocks. Instead they want rather something new that will interest, excite and even delight them. Whereas in the 20th Century customers had few choices and little access to information, now thanks to global competition, they have many choices. Also, thanks to the Internet, they have instant access to accurate information about what the choices really are. If customers are not delighted, they will go elsewhere. Today what is needed is “scalable innovation”, which depends on innovation and flows of new knowledge—the life-blood of real knowledge management.

The sixth plank is economies of scale. Becoming bigger enables the firm to achieve economies of scale. But in the process, traditional management encounters the experience curve and the phenomenon of declining returns. The more experience the firm has, the longer it takes for the next performance increment of improvement. This is discouraging and tends to result in managerial “flailing”, as managers desperately try to make further gains in a setting that doesn’t permit it.

What makes it difficult to change traditional management is the interlocking and self-reinforcing nature of these assumptions, attitudes and values. Once the goal of the firm is established as producing goods and services or making money for the shareholders in a predictable economic environment, scalable bureaucracy and the efficient management of existing knowledge stocks are seen as appropriate responses. The firm develops proprietary knowledge. It aggressively protects that knowledge to make sure no one else gets access to it, and it extracts the value from that knowledge as efficiently as possible and for as long as it can. The rationale of the firm is to minimize transaction costs in deploying these stocks of knowledge efficiently. That way of thinking and acting created huge and seemingly successful companies in the 20th Century.

But it is a failing proposition in the world today. The life expectancy of Fortune 500 companies has fallen from around 50 years half a century ago to less than 15 years. If trends continue, Deloitte’s Center for the Edge predicts that it will fall to 5 years.

Why KM programs tend to get killed

So the root cause of KM programs being killed is that KM is incompatible with the underlying philosophy of traditional management, which no longer fits the world of today. In 1950, it was not unreasonable for large companies to think that the world is predictable and linear and can be controlled and manipulated. They could manipulate customers. They could manipulate employees. They could protect and exploit existing stocks of knowledge and in the process make a killing.

In 2010, this approach is an increasingly bad fit with the economic context. The result is increasingly desperate and flailing efforts to maintain control, to cut costs, to downsize and outsource, even as those very efforts become more and more counter-productive.

So we should not be surprised that great KM programs repeatedly become victims of this managerial flailing. In a world in which the game consists of exploiting static knowledge stocks and achieving scalable efficiency, knowledge management programs are perceived as “costs” that can be cut with negligible loss. So it is natural that in the midst of a cost-cutting drive, or an outsourcing or a downsizing, killing the KM program can be seen as an obvious quick win. It is a low hanging fruit that enables the firm to meet its quarterly revenue targets, even as it hamstrings the firm’s ability to thrive for the future.

It hardly matters that the KM program has—for a time—the support of the senior level of the organization. With a steady influx of new managers, all trained at business schools, weaned on standard management textbooks, avid followers of HBR, and armed with sharp cost-cutting knives, it is only a matter of time before they get the chance to bring the firm back into line with the assumptions of traditional management and gut the KM program.

What’s the alternative?

What’s exciting is that some firms are proceeding in a radically different way of organizing and managing. They are proceeding on a different of interlocking assumptions, which begin from the goal of delighting clients and providing a steady stream of new value to customers. Once this becomes the goal of the entire firm (not just the goal of the marketing or the R&D department), then bureaucracy and command-and-control cease to be a viable organizational option.

Instead the firm will naturally gravitate toward some variation of self-organizing teams as the default model for organizing work. That’s because it is only through mobilizing the full energy and ingenuity of the workforce that the firm is likely to have any chance of success at generating the continuous innovation needed to delight clients.

Once the firm adopts self-organizing teams aimed at delighting clients, downsizing and outsourcing are seen in their true light as counterproductive to everything the firm is trying to accomplish. Instead, doing work in an iterative fashion and providing value in each iteration are the norm. Radical transparency between managers and workers becomes a necessary principle for achieving the goal. Happily, when firms get into this mode, the risk of needing to downsize or outsource its core business is reduced: continuous self-improvement is a normal and natural way in which self-organizing teams evolve toward high-performance. Systematically accessing new knowledge flows--aka knowledge management--becomes central to the firm's future.

This is a radically different way of organizing and managing. Whereas traditional management is a downward spiral with negative economic, moral, and social consequences radical management is a virtuous circle with happy consequences for firm productivity, job satisfaction, and client delight.

What does this all mean for KM?

So what’s a knowledge manager in an established organization to do? How do you protect your program against inevitable death threat posed by traditional management?

The first step is to make sure that your ship is seaworthy. Check to make sure that your KM program is well managed, with clear goals, vibrant communities of practice, effective use of IT and social media (though without excessive reliance on IT), and valid metrics of the KM program’s contributions. Without those elements in place, your KM program will be a sitting target for a cost-cutting traditional manager.

The second step is to make sure that your KM program is focused on supporting innovation and learning, and drawing on flows of new knowledge, including knowledge from outside the firm, not merely re-circulating the internal dogmas of yesterday.In this way, your KM program can be a genuine contributor to the firm’s real future.

The third step is to check: what are the overall goals of your organization? If your firm is already committed to radical management, you are in good shape. But if the firm is built around traditional management--producing goods and services, and making money for the shareholders, through “scalable efficiency”, then your KM program is at risk, no matter how well run it may be, and how matter how much you can demonstrate what it is contributing to the firm today. With the attitudes and practices of traditional management in place, it is only a matter of time before your KM program will become another victim.

The choices here are to brace your program—and your own career—for the inevitable death blow, or persuade the organization to embrace radical management.

Hi Steve,
Well said. Here is my response to your previous post on the kind of management for the 21st century http://suifaijohnmak.wordpress.com/2010/07/03/what-kind-of-management-is-need-in-the-21st-century/ that I think I would like to resonate with your views here again. I understand that you have been educated in Sydney, Australia and as I am also living here, I could sense a lot of traditional management philosophy well in place in many companies on this side of the globe. I applaud you in having such a deep insight into knowledge management and its impact on organisation. Relating to knowledge management, it was once thought to be the panacea to many large (US) organisations in the 1990s. Management gurus like Peter Drucker and Peter Senge who were the pioneers in those areas emphasised the importance of KM in the modern era. However, as you have pointed out, it has always been a tension between the traditional command and control style of management and the modern networking organisation where a lot of "networking" management practices (with COPs) could be viewed as too risky, "un-controllable", not following a "static vision and mission" and thus not sustainable. Also, restructuring an organization is no longer a one-time deal, leading to discontinuity in knowledge management programs. The dramatic reorganisation of AT&T in the fall of 1995 is an example of such restructuring. So, given such ongoing process of re-structuring in lots of business, dictated by the changing needs in the business environment, what might be the value of knowledge management (based on the previous organisation) on those re-structured organisation? Besides, most organisations are looking for profits and growth in response to stakeholders' needs and expectations, not "knowledge management" per se. So how could one convince the long term benefits of knowledge management to an organisation? Finally, is the word "management" appropriate in the knowledge management? Would it be a leadership quest for innovative "knowledge management" that is more important? Should that be based on nurturing of the knowledge workers to network, rather than the pure management of knowledge itself that could bring about the transformation and real change to management practices?
Thanks for your insightful post.
John

Brilliant post! It's going to take me a whole blog post to respond, but that will have to wait until later. For now: The numb of the problem, to me at least, is the rate of change. For most businesses, the rate of change is now so fast, that anything that depends on codifying processes is bound to fail. Knowledge is a social construct, not a material one, and until businesses treat it as a social product, KM will fail.

Great post showing that it is still a long way from compelling insights to a sustaining change in human habits. It also reminds me of the saying that organisations remain 'stable' as long as those who are in power to make change happen fear personal discomfort (e.g. loss of control) in doing so.

KM is a business proceudral that once embedded and run automatically by itself, then there's no need for further KM Program Office in the organization. At that time the unit can be shut down.

"Preparing to let go" is the common theme that you would expect when running a KM program in the organization. Once everyone has this knowledge sharing, and learning together habits, then there's nop need for KM program office. The KM practitioners will have to adapt themselves to this natural -pheonomenon. It's a fact of life. I beleive that what happened in BP and many world class organization that had been practicing KM for quite sometimes.

Great article, and a valuable reference for anyone involved in KM. Only comment I'd make is that trying to 'sell' a concept called Radical Management to a firm that is run on the basis of a traditional approach to management would be next to impossible. Maybe it's just the name that would be a stumbling block, but my suspicion would be that any firm managed this way has already decided it's own fate

Totally rocking post. It leaves me, like many of the folks above mentioned, speechless. Your analysis is spot on, to my mind. I am particularly impressed with the end notes on what KM programs will have to be wary about. The only thing I perhaps do not agree with is your perception that HBR encourages traditional management techniques even today. To my mind, most of the current HBR articles and blog posts are brilliant and step out of the conventional management boundaries. In fact, I've personally read many HBR articles that emphasize on KM as a management tool.

Great article. Thanks so much for sharing. Sharing this knowledge with us and not keeping it from us makes you a true visionary in two ways. Obviously you understand the change companies have to make. Publishing this article and sharing your knowledge would also be recognized by your (potential) customers. Most people are online and accustomed to the use of internet technology which makes it easy to find people like you, and products and services they like. So writing this article also makes you a great example of the benefit of sharing knowledge. With this in mind only those companies (people in companies) understanding this dramatic shift in customer behaviour will flourish. Others will keep on “doing the same thing over and over again and expecting different results.” -Albert Einstein

Nicely said Steve, especially how you pointed out the difference between static knowledge (rapid obsolescence) and what customers want today - flows of new knowledge. I also enjoyed the arguments you put forward about the fundamental assumptions, attitudes and values of traditional management.

I haven't come across 'delighting the client' before - customer satisfaction is the usual term used. Though the post was long, it wasn't too long.

Steve - so true! When I lecture to MBA students about KM I have to remind them that this is not a function within an organisation carried out by a group of KMers but an holistic approach to management that recognises and places the application of liberated human cognition at the heart of an organisations success.

I also remind them what Ackoff said about business classes and, by extension, what you often read in HBR,

It gives students a vocabulary that enables them to speak with authority on things they do not understand.

It gives them a set of operating principles that enable them to withstand any amount of disconfirming evidence.

It gives them a ticket to a job where they the can learn something about management.

I also get so sick of hearing about how to calculate "ROI on KM projects". The onlly ROI worth looking at is the success of the organsation.

However, I'm not sure I agree with it. One of the major problems is that a lot of people consider a KM program a success if everyone contributes and shares their knowledge (most KM programs doesn't even reach this point).

However, a KM program is only a success if people actually use it to help them get their job done !!!

I'm pretty sure that if everybody needs to use the KM system to access knowledge on a daily basis in order to get their job done, the KM system will *not* be shut down by management.

I believe most upper management recognize that knowledge is the very lifeblood of the organizations - but that doesn't mean that the KM system is !

How do you protect your program against inevitable death threat posed by traditional management?
- by ensuring that people needs it, wants it and actually *use* it to get their job done.

Atle--One of the subtle ways that traditional management kills great KM programs is to declare victory. People are using it. It's working. Great! So we don't need a KM leadership team any more, or any funding for that matter. KM has been internalized! It's part of the way we do business!

But come back a while later and you see that without leadership entropy is setting in, energy levels are falling, and the firm is slipping back into the old siloed way of doing business. Some communities of practice soldier on with no support, as they contain true believers. So there are still oases of excellence, but from an organizational point of view, the KM program is a shadow of its former self. The life has gone out of it. It's no longer at the cutting edge of the organization.

But if doing things differently to do things better is so hard to accomplish and preserve, the ultimate question is: Can humans transcend their inclinations to cave to strong alpha leaders (whose instincts are NOT to share power and invite more stakeholders) and resort to traditional tribal behaviors?

Put another way, is the transformation of law firms into KM-based organizations as inevitable as Richard Susskind thinks it is?

Ann--In the overall scheme of things, the answer is yes: because this way of managing entails leaps in productivity, its eventual triumph is inevitable. Firms managing this way will put the old-style firms out of business. It's not whether but when. In the long run, resistance is futile.

But "the long run" could take a while. It took centuries for the scientific method to prevail. It took decades for traditional management to prevail over craft approaches to work. But in the end, the economics is inexorable.

Radical management is two- to four-times more productive than traditional management. So again, the economics will be inexorable.

If entrenched managements dig in and resist, it will be done to them, rather than by them. And it could take quite a while.

If it happens intelligently, it could happen quite quickly. Obviously I'm doing my best to accelerate the process.

I can totally empathise with "Death of the KM programme"...."it was fun while it lasted but then just as we were getting somewhere the executive declared it a success....and that was the end...". While I'm totally aligned with your radical management thinking, isn't it just another KM to be cautiously accepted and then killed off by declaring success far too early? I'm not convinced that this sort of change will happen in established / mature organisations ... which includes all the public sector. I think we have to find those new firms and governments that start out using radical management techniques (because it makes sense) and who are then wildly successful using traditional business metrics. Certainly management practices at Google and Cisco have received lots of attention for their ability to grow shareholder value at an astonishing rate. Are there examples in the non-technology sector?

PS I don't expect BP will re-engage with their KM programme now despite their current misfortunes in the Gulf. Will they accept that the spill was a knowledge problem or a process one?...I'm betting on process!

Laurence--You mention Google's astonishing growth, though one does have to wonder whether that is really due to radical management. Read an interesting post about Google here: http://bit.ly/9JTlwJ.

It's seemingly written by someone who knows the inside story and suggests that Google doesn't "get it" either. They lucked into a search engine and business model that made a humongous amount of money, but outside their core search business, they have had real trouble innovating. An interesting read.

In my new book, I've tried to stay away from "celebrity" firms like Google, because we all tend to be dazzled by all the money they have made, and the halo effect starts to kick in.

I do have some examples from the public sector--the World Bank and the US Navy--although the private sector has been doing most of the early work in radical management. I believe that the principles of radical management can be applied in the public sector, although they do face more constraints, as I discussed in my blog post here: http://bit.ly/bSFogA.

Steve, I think you are drawing lessons from a false conclusion, that great KM programs fail. Great KM programs put themselves out of business by thoroughly integrating KM practices into an organization's activities. Once that is achieved, the only thing left to do is assure that there's some kind of KM stewardship in place, some resource to keep the organization up to date on developments that impact KM practices, e.g., the way social media impacted practices.

Patrick--You write: "Great KM programs put themselves out of business by thoroughly integrating KM practices into an organization's activities."

The question I am raising is: what kind of "organizational activities" is KM being integrated into? If the "activities" consist of the principles and practices of traditional management, as it is in most big organizations today, then the life expectancy of KM will not be high.

You can see a vivid illustration of this in the case of BP and the brilliant map drawn by Ed Rogers of NASA: http://bit.ly/bnez4F.

The CEO declared that KM had been "thoroughly integrated into the organization's activities" and canned even the "KM stewardship". The result after a few years is a calamity of Biblical proportions.

When the driving dynamic of the firm is to cut costs and make money, then KM will always be an endangered species.

Put in another way, you could say that KM will only be safe if the organization's activities are integrated into the values and principles of KM. In effect, you are talking about running the whole organization in a very different way from traditional management.

That's what my book tries to describe: what is the "very different way" of managing. What does it look like? Who is practicing it? How does it work?

Even when you have that kind of management in place, KM is not entirely safe, because there are armies of MBA graduates and consultants wandering around the middle management, with the mental model of traditional management in their heads and looking around things to cut. KM is usually an easy target--a low hanging fruit.

The story of Toyota is illuminating. Even after fifty years of running the organization in accordance with KM-style values, in 2004, the top management started focusing on growth and cost cutting, and within a few years, they had a major crisis on their hands. This may indicate that KM will NEVER be safe unless and until we can do something about business schools and management textbooks and re-educate a whole generation of managers.

Kent--KM is in the curriculum of MBAs, but it's usually a footnote on page 398 of a 400 page textbook, along with lean manufacturing, leadership storytelling, innovation and other right-brained thinking. The real drivers--the headlines in the front of the book--are common sense linear thinking, cost reduction, economies of scale, making the numbers, and so on.

So we have an army of MBA graduates, consultants, and middle managers wandering around looking for things to cut, and very pleased with themselves when they have been able to do so.

We need to reverse the order of the textbook. The footnotes on page 398 about innovation, adding value for clients, knowledge management and so on, need to be at the front of the book, and the cost-cutting should be at the back of the book--something to be aware of, but not the main agenda.